Last-Ditch Business Survival Tactics

When your back is to the wall, it's time to take radical measures. Here's some advice for a contractor who's up against it. October 13, 2008

QuestionI need some encouragement. How bad has it been for someone who has managed to recover and go on in business and be profitable? What if you're upside down in jobs, can't borrow money, have work coming in the future, but can't borrow against that? You own all your own machinery, have one employee left (you think). Now you have learned the hard stuff and have a profitable system in place, but is it too late? You can't leave the business because you have obligations to customers that you won't let down. Can it get bleaker?

Forum Responses(Cabinetmaking Forum)
From contributor H:Sound like you're at the bottom? If so, if you stick with it, you have nowhere to go but up. So stick with it...

From contributor J:It'd be a lot bleaker if you didn't own any of your equipment and didn't have a profitable system in place. Sounds like you may have all the ingredients to move forward. Make a to-do list and be sure your most urgent and important tasks are at the top. That would include things that most quickly lead to money.
From contributor A:There are a few different levels of desperation. There are times when cash flow is tight and you start to reign in your spending. Then there are times when you start to let your payables wait a little longer than normal. At some point, it will get so bad that you have to acknowledge that you're going to have some damage to your reputation with your vendors, and just freeze the money. Nobody gets paid. This is about survival. You can repair the damage later. There's a mysterious calm that can come over you when you get to a point of just working until someone padlocks the doors. Then before you know it, something happens. A deposit comes in, or you beg a client for money, or you beg a relative for money, or you somehow complete a job and get paid... Pay the phone bill, pay the electric bill... everyone else has to wait. Just keep going any way you can. And make sure you make money on the next one.
From contributor M:Thank you for posting! Too many times we are hounded by the perfectionist here - you know, "buy this tool and this tool only, or you'll be out of business!" The best tool we have is our spirit - it's why we do what we do. And at the point you described, I am so glad I stuck it out. Dig deep for good ethics, good work, and hang in there!
From contributor K:You are in the same boat as a lot of us right now. The stable customers that I could always count on 6 months ago don't order 1/10th of what they did. However, I'm going to hold on. When the economy comes back and the smoke clears, I will still be standing, ready to grab the work from the guys who threw in the towel. If you are passionate about your business, then find a way to hold on. Get a part time job, do what it takes, and be ready when things pick up.
From contributor W:I'm sure that your post has two motivations. First, you want to vent a little, since most of the posters here seem to be successful, so you want to explore why they are able to be successful and you aren't. Your second motivation seems to be the search for a solution to turn things around. There is enough experience on this site to guide you through these rough times and most are willing to help by sharing their experiences.

It sounds as if you are in dire straights from a cash perspective. Cut your last employee loose immediately. You can't afford to keep him right now. Next, figure out what it will cost to run your own internal budget for 3 months and then develop a plan to get that amount of cash in hand as quickly as possible. Some solutions include selling off those assets that are nice to have, but not a necessity. Examples include trailers, larger power tools, etc. Anything that has larger value to it. Then, for peace of mind, accept no more work.

Don't get into the cycle of accepting new business to fund old business. Take a look at your existing jobs and prioritize those that you can finish and those that are profitable. If you can't finish or if they are a deep hole, walk away. They are most likely not profitable and are unhappy with you anyway. Another alternative is to contact all of your clients and notify them that the economy has finally caught up with you and you are in need of help. Some customers will balk and walk. Others will inquire about what their alternatives are. One or two might even volunteer to help as long as they get bumped up the list.

Sorry for the rambling, but I'm sure others will chime in with more clarity. The goal is to slow down and concentrate on one job at a time and get paid for it. It won't be easy and as already mentioned, your reputation will suffer, but most likely, your reputation is already suffering. Keep us posted and I'm sure we can offer some suggestions. Don't forget to take some time off. It is necessary to keep your batteries recharged. Don't let a customer's emergency become yours, and lastly, don't promise a customer anything.

From the original questioner:I appreciate all the help. I have two jobs in which the customers are willing to pay for materials even though they have already given a deposit. The other two are not aware of the dire circumstances but are not needing cabinets yet. I will make no money on these four jobs. I can make a little, just enough to keep things out of collection, but not enough to survive. I have things for sale and keep lowering the price to liquidate and generate cash. My wife is working and is helping at the shop when she can. I have reduced my shop to 1500 sq ft from 3000 sq ft. I have to pay one more rent today for the full footage. Don't have the money but they can wait. Trying to collect 10,000 from a customer who won't pay me or 6 other subs. To top it off, I have a home I must finish or the builder loses thousands upon thousands in discounts. I have family helping when they can. I am always looking for ways to be successful, but this post was not to get secrets out of anybody. I would just ask up front for any advice I need. I really am in bad circumstances.
From contributor W:First things first! Contact the builder who has thousands to lose in discounts if you don't finish your part on time. Explain the circumstances and offer a solution. The solution would be that you concentrate all of your efforts on his job in return for immediate financial help. A couple of things could happen. He could bail you out if he likes your work and trusts you. The other thing that could happen is he finds another cabinetmaker to finish your job. Either way, you win by getting this job off of your plate as soon as possible. Most reputable builders will work with you as long as they get what they want.

Regarding those jobs where you will make no money, did you take your profit off the top or did you price these jobs upside down to begin with? I ask because it makes a difference. If you took your profit off the top, you already made (and probably spent) your money. If you priced these jobs too cheaply, then you lost, period. Don't mean to beat you up, but the idea of owning a cabinet shop is to make money. What this means is that in the future, you have to price your jobs to make money. The end result will be that you don't get every job you bid. However, those jobs that you do get will be able to fund themselves and as you complete those jobs, your reputation will grow as a maker who does what he says.

One last thing. I remember when you first started posting here. Based on your posts, I thought to myself, this guy is growing way too fast and will run into a brick wall eventually. So I offer this one piece of advice that has served me well, but has been a hard earned lesson. Never, ever befriend your clients. Always be friendly and courteous, but never let a client into your inner circle. Why? The relationship will typically be one sided. Most clients (rich and poor) want as much as they can get for as little as possible. They don't care if you if have to work 16 hour days, 7 days a week, as long as they get what they want. They will call you at all hours just to press you into concessions. Don't fall victim to that, and if you already have, change the rules. You can be fair, accessible, polite and even friendly, just don't be their patsy.

When you realize this and implement procedures to prevent this from happening, then you can grow. One other thing, you will never find a "full-charge" cabinetmaker who will do everything that you want him to, at the level of quality that you want, and at the price you are willing to trade for. Thus, when you do start to grow again, take it one job at a time. Outsource the more difficult things like doors and finishing. Hire low skilled workers with the premise that they will only do one aspect of a job, like sanding or assembly. Take it one step at a time and you will be okay. Again, good luck.

From contributor M:It takes a lot of courage to ask for help and I feel a lot more assured of a man who will than one who won't. I have had my share of experts try to work here only to cause major damage through arrogance. In my world, success is measured not by what we have, but by what we have overcome.
From the original questioner:I think I priced right, but the money is gone. The first half of the money - last half still due. The last half will pay for jobs. I will implement your advice. I don't wish this on my worst enemy (the guy that won't pay me).
From contributor S:Maybe you wouldn't be able to handle what I am going to suggest, but it's worth a shot. Money is an issue for you right now, and it looks like you have to have cash flow coming in or you won't get the jobs out. Get a job at a courier company but tell them you can only drive 3 days a week. The bigger companies pay fairly well and since they need drivers they will sometimes work with your timetable. That will give you a paycheck for the smaller items like power, phone, etc. Then you will have 4 days and a few nights to work on your cabinet jobs. I suggest a courier job because it is a little less physical than some, and you will not wear yourself out. You will have to put in a lot of hours in order to survive. The courier companies are used to high turnover also.
From contributor W:I learned the hard way, just like you. Change orders are a scourge. Not only does the customer expect you to do something for free, they expect that a change order shouldn't delay the overall job. When you are first getting started in this business, it is real easy to want to be accommodating and tack on change orders at the end, sometimes with pay, sometimes as a freebie. Don't do it! Mark up the change orders and demand payment right then. Also adjust the schedule to accommodate for the delays. You will sleep better.

Back to the problem at hand. If I understand right, your builder owes you half of the job price. This is a no-brainer. Sit down with him and explain that you've had a customer go south on you and you need money. Ask for more than you expect to get. Ask for the remaining balance. Settle for 90% of the remaining balance. Don't make concessions. Don't discount. Only offer to bump him to the top of the list and set an install date and stick to it. There is nothing worse for a one man shop than having to be in two places at one time. If you need to spend time in the shop to make the job ready, tell him so. Invite him by and show him what is completed. Regarding the other customers, do the same thing. Whoever responds in a positive manner first, gets bumped to the top of the schedule, period. The worst case scenario is that you lose these customers... or have a heart attack (experience speaking here).

From contributor U:Please take a deep breath and don't panic. Lot's of good advice here. Definitely talk to that builder on the deadline, and explain what is going on. Before you get too discouraged, sit down and list all that it takes to turn the key. List all the jobs and subtract backwards. Look for more work and by all means check and make sure you are making enough on each. Call a collections company and get the people that owe you money out of your head, or call them every day until they pay you. Call them at work, call them until 11 pm, call, call, call. Hell, I'll call the bastards for you.

Use all that you have learned to dig down and get the best out of each job, cut, assembly, install, everything. You can overcome this fast!

You haven't mentioned your shop, layout procedures, etc., but if you are paying for space, then make it work for you, and sit down every night and write down a to-do list. Make sure that each item has to do with it turning into cash. Yes, wasted energy on to-do lists that have nothing but busy work produce no cash flow.

From contributor R:Can it get bleaker? Sure it can. You could get evicted. You could have the tax people place liens, you could get sick from fret or take up drinking way too much. Otherwise it sounds like a typical slump in cash flow for which you will learn to stash some cold cash in the shaper cabinet out of "other hands" in the future. I've opened that little door more than once in twenty years and when you borrow from yourself, don't forget to pay it back and with some charges. BankMe is the best bank I've done business with.

I bet you've read the rules. Get a lot down. Be like a repo man when someone is past due. Never be afraid you will lose a customer by being frank or to the point if they are dragging out payment. Talk to your customers.

Right now you need cash. Work your network of family or just work for someone on the side and by all means keep in touch with your suppliers. Besides the lights, they keep you going and nothing about your situation is new to them. See if you can enlist a friend or family member for working help. Let the temp go now, for nothing is worse than employee money and tax considerations not being paid.

Five years from now you will look back and laugh, six and you will be investing in rental property or other forms of extra income. At least it reads you didn't fall for the wonder tool sales-lease gurus for whence the money went.

From the original questioner:All you guys are incredible! Here it is 8pm and I am still working. Nothing new to you I'm sure. I'm so glad my only debt is $1000.00 for a used 1403 Holz-Her I bought. One supplier is threatening lawyer option. I will talk to them tomorrow. I do have family coming in to help, and the main builder said he will give some installment money when he sees some cabinets coming together. I have to get that one done on time. If the Parade of Homes comes and he doesn't meet the deadline because of me, he will lose thousands in flooring discounts alone. It was good to get back to the shop from a jobsite and read these posts. Thank you!
From contributor M:Pre-build the toekicks for the flooring man so he has no time lost. If floor is 3/4 thick, then add that to the height of your toekick, build base boxes normal height less toe kick, or if you build with toekicks attached, then use some 1/4 inch off-fall to build a toekick pattern, let floor man cut. 2-3 hours devoted to this can buy you days of fabrication time!
From contributor C:This has been a great thread. The downturn in the housing market really started over 12 months ago for us. The good thing is that downturns force many of us to look very closely at our businesses and re-evaluate every facet. That's what my wife and I have been doing. I think I'm coming to the conclusion that it's time to make serious changes.

I really enjoy what I do. After a lot of inward thinking, I've found that I like working with customers, designing projects, operating the CNC, assembling and finishing. I have come to hate trying to run a business and wearing too many hats. We're at the point of putting our equipment up for sale - Thermwood, edgebander, even selling our commercial property and relocating.

Has anyone sold their CNC and moved with it to work for the new owners? Is this a viable option? It's not a matter of being a disgruntled, angry person, but the realization that I may not be cut out to be a successful business owner. I'd rather sell now than risk losing all that we have worked so hard for.

From the original questioner:I know in my case, the problem was not the market, but me and some other circumstances beyond my control. You have to have a buffer of capital to overcome some things, even if you are a great business man. When you start out in the hole like I did (capital and smarts), you are in for a fight. I am choosing to fight! I know you learn some hard but dear lessons when you are forced to. Right now I am being forced to learn. I would not make any decisions based on fear of what might happen.
From contributor B:Hang in there. I went through pretty much the same as you, beginning at the first of the year. Giving away some jobs to get more work, letting the customer get over on me, cash flow, etc. All this converged on running out of work for about 3 weeks while finishing up jobs that were not profitable.

Our production was good and I was giving away some jobs to keep my guys busy, so I wouldn't lose them. Guess what? I had to let them go. I kept one helper. Things looked really bleak. I too do not operate on credit. One thing that was killing me was cash flow. Now instead of asking 1/2 down and 1/2 on completion, I ask for 1/2 down, 40% when cabinets are installed, and the last 10% when the doors and drawers are installed, or 1/3 1/3 draw and 1/3 on completion. No one has even batted an eye at this draw schedule and my cash flow problems are solved.

After I hit bottom, I managed to load up 7 jobs. With my lower overhead I found that with me on my tools every day (since I wasn't having to hustle so much work) that me and my helper were producing almost as much as with the 2 other guys.

Long story short, even with some long hours, normal setbacks, and all the things that can go wrong, in the last 4 months I have knocked out these jobs, been profitable, and put about 8,000.00 in the bank. I also put me and my family on a strict budget - you would be surprised how much that helps. I am a hell of a carpenter and have been for 26 years, but I really struggle as a businessman. If I can do it, you can too. One thing at a time.

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